Big business thread from an e-Thot that doesn’t know anything :

To understand airlines you need A LOT of background. Airlines need planes to offer their service. Let’s simplify, imagine that the value chain looks like this:

Parts manufacturer > Boeing & Airbus > airlines

Let’s momentarily pretend that airplane leasors, PMA parts, etc don’t exists (they don’t impact the gist of what my point is)

In any business vertical the differentiated (irreplaceable) participant is the price maker.

Parts manufacturers have to certify every single part they make with the FAA. Down to even the mundane parts like toilet seat handles. Many of them are single source.

Boeing and airbus are an oligopoly. They assemble parts and manufacture the planes

Airlines simply operate their planes/routes. What separates one airline from another? They try to create differentiation via alliances, frequent flier Miles, reward credit cards etc. ultimately which airline you fly on a given day is simply a function of price.

Boeing and airbus (referred to as BA for the rest of the thread ) are the fulcrum n the value chain. When a part has multiple suppliers they choose the partmaker to do business with.

Can airlines demand a lower price for the planes from boeing? Not really.

Because oil is such a large cost factor, Airlines buy the most fuel efficient form factor of each plane they need.

The partsmakers minimally compete on pricing to be included in BA’s build (oem part ) via rebates to BA. Then when airlines need to service the planes they

Purchased they have to pay the parts makers the “premium rate”

They can’t go to competing parts makers for lower prices OR 3D print their own parts because FAA regulation (and the risk of liability of said cheaper part was found on a downed plane)

So in summation:

In the airplane value chain airlines are a dime a dozen. BA demands a firm price for their planes, parts makers increase replacement cost of parts annually to extract increasing rent-like profits from airlines, oil (major cost) price is predictable, and THEN

Airlines compete with one another on the basis of “who has the lower prices”

What an absolute shit position to be in. They aren’t “fat cats” so much as they are the low man on the totem pole (sure you could find mismanagement, but even the best airlines are terribly positioned)

Airlines have no Control over their own destiny. They compete purely on the basis of tiny operational Efficiencies allowing “best in breed” airlines to charge a lower rate.

BUT WAIT

if a competitor is dumb and borrows money (debt) to charge rates that are below cost...

What do you do (assuming you are trying to run your airline with minimal mismanagement?)

Sit by while your competitors borrow money and take your market share? Eventually they’ll spend themselves out of business right?

One problem...